Competition and Manipulation in Derivative Contract Markets

59 Pages Posted: 2 Jul 2019 Last revised: 5 Jul 2019

See all articles by Anthony Lee Zhang

Anthony Lee Zhang

University of Chicago - Booth School of Business

Date Written: July 1, 2019

Abstract

This paper develops methods and metrics for quantifying manipulation risk in cash-settled derivative contract markets. I show how to estimate market participants' manipulation incentives, and predict manipulation-induced market distortions, using commonly observed market data. I develop a simple manipulation index, which can be used as a diagnostic metric to detect potentially manipulable contract markets, similar to the Herfindahl-Hirschman index (HHI) in antitrust settings. I apply these methods to estimate manipulation risk in a number of contract markets.

Keywords: derivative contracts, manipulation, regulation

JEL Classification: D43, D44, D47, G18, K22, L40, L50

Suggested Citation

Zhang, Anthony Lee, Competition and Manipulation in Derivative Contract Markets (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3413265 or http://dx.doi.org/10.2139/ssrn.3413265

Anthony Lee Zhang (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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